EconPapers    
Economics at your fingertips  
 

Divestitures and value creation: does leverage matter?

Pascal Nguyen

Applied Financial Economics, 2013, vol. 23, issue 14, 1145-1154

Abstract: This article evaluates the extent and sources of value associated with the divestitures of French firms over the period 1990 to 2010. The results show that excess returns are consistently higher when the divesting firm is highly levered. The market reaction is also stronger when the seller's return on assets and interest coverage ratio are low and when the seller is less focused. Using changes in the firm's fundamentals following the divestiture as proxy for market expectations at the announcement date, we find that excess returns are positively related to expected increases in focus, expected increases in the interest coverage ratio and expected decreases in leverage. These results indicate that investors recognize the benefits of divestitures and reevaluate the seller accordingly. However, they only hold for highly levered firms. In contrast, the market reaction to the divestitures announced by low-leverage firms does not appear to be related to the seller's fundamentals. This finding suggests that the determinants of value creation are not uniform across all firms.

Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09603107.2013.797558 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apfiec:v:23:y:2013:i:14:p:1145-1154

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAFE20

DOI: 10.1080/09603107.2013.797558

Access Statistics for this article

Applied Financial Economics is currently edited by Anita Phillips

More articles in Applied Financial Economics from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().

 
Page updated 2025-03-20
Handle: RePEc:taf:apfiec:v:23:y:2013:i:14:p:1145-1154